MARKETING

What is marketing?
Marketing refers to a social and managerial process involved in identifying, analysing, predicting
(anticipating) and satisfying the consumer needs and wants (requirements) profitably.
All embracing function that links the company with customers tastes to get the right product to
the right place at the right time.
Marketing decisions are made through the marketing model based on the findings of the market
research carried out through the marketing mix.
At all stages in the marketing process the firm needs to work closely with the production and
Research and Development departments to ensure that what is promised is delivered. Precisely,
marketing acts as a link between producers and customers.

Marketing effectively
Effective marketing has certain features:
(i) A process – is an ongoing process all the time.
Business must be prepared to respond to changes that take place
For example, business marketing office furniture would take into account the consumer reaction
to design.
(ii) A business philosophy
A way of thinking about how to satisfy consumers’ needs
For example, in superstores/hypermarkets, they have restaurants, play centres for children.
This helps to cater for all their customers’ shopping needs.
(iii)Building relationships with customers
Profitable businesses are often built upon good customer relations.
This involves dealing with customer complaints in a considered manner.
Customers as a result are likely to develop a favourable view of the business and buy its
products over a long time.

Purpose of marketing
It assists in Halting/stopping a decline in the market share/ threats of liquidation/competition
etc.
Making the brand image younger (through advertisements, sales promotions etc)
It aids Boosting of the awareness of a brand that has faded from the customers’ memories, e.g.
perfection soap, Big Ben etc.
Identify consumer requirements and marketing opportunities i.e. ensure that products meet the
consumer requirements through market research. (Managers place stress on having a ‘feel’ for
the market.
Enhance consumer perception of the organisation (goodwill) e.g. Nandos, OK, Barbours,
McDonald restaurant.
To anticipate consumer requirements-
Businesses have to understand what consumers want in advance e.g. supermarkets and
butcheries stock up with chicken before Christmas. However, tastes and fashions in today’s
markets change faster than ever before. Therefore, marketing must anticipate and respond to
these changes. For example, a toy manufacturer must be aware of the next craze. In addition to
rapid technological changes that have taken place in recent years, firms constantly invent,
design and launch new and advanced products onto the market. Electronics industry has
introduced DVD players, digital camcorders, Mp3 players, PLAZMA/flat screen, HD etc.
To compete effectively:
Number of products competing for consumer attention is constantly increasing. Businesses
today are finding it easier to change their products to enter new markets. Also there is increased
competition from new markets which enables businesses to work harder to be competitive.
To make a profit
Businesses must make a profit in the long run in order to survive. Charities, public sector
organisations such as colleges and hospitals adapt and change marketing of their services to
satisfy consumer needs.

Role/Function of Marketing
These are the main areas in which marketing activity helps to achieve marketing
objective/principles such as:
Researching on present and future needs of customers
Managing changes in technology, competition and consumer tastes.
Co-ordinating marketing with production, planning and control department
Planning to develop a product which satisfies consumer needs
Co-ordinating and monitoring the marketing mix. 4ps. Product (including size)

Marketing Approach
(a) Product oriented approach.
An inward looking approach that focuses on making products that can be made/ have been
made for a long time and try to sell to them.
Businesses invent and develop a product in the belief that it will find consumers to purchase it.
Businesses emphasises on producing quality products/or technically sound products from their
own point of view and not consumer point of view. They assume that customers do not see
something is good until it is designed.
Focus of activity is on product itself.
Such quality driven firms still do exist especially in products where safety is of great importance
such as bottled water, crash helmets, pharmaceuticals etc.

(b) Production oriented approach

Firms concentrate their efforts on efficiently producing high quality goods/ inward looking.
Thus, low cost production methods expecting that the product will be sold as long as it is cheap.
Such firms do not respond to customer needs but concentrate on production cost.
It is regarded as an old fashioned business that ignores customer tastes and needs.

(c) Sales oriented approach

It refers to firms which produce anything and try to sell to consumers.
The firms employ some aggressive selling techniques in trying to push the product that have
already been produced.

(d) Market oriented/led approach

An outward looking approach basing production decisions on consumer demand as established
by market research.
It is the extent to which a firm’s strategic thinking stems from looking outwards to consumer
tastes and needs.
Thus devoting production and marketing resources to satisfy consumer needs.
This approach requires research and marketing analysis to indicate present and future demand
before the product is produced or developed. Consumer is put first.
This is beneficial to the firm because the product will be self selling.

Advantages of Market orientation

It can respond quickly to changes in the market because of its use of market information.
It will be in a stronger position to meet challenge of new competition entering the new market.
It will be more able to anticipate market changes.
It will be more confident that the launch of launch of a new product will be a success.

What effect will taking a market oriented approach have on a business?

1. It must consult the consumers continuously through market research
2. Design the product according to the wishes of the consumer
3. Produce the product in the quantities consumers want to buy.
4. Distribute the product according to the buying habits and delivery requirements of the
consumer.
5. Set the price of the product at a level that the consumer is prepared to pay. Thus, right
product at the right place at the right time at the right price.

Market
The term is used to describe a situation/ meeting place between buyers and sellers.
Anyone willing and with the financial ability to buy a product
It is the total number of potential customers for a product that can be identified by certain
characteristics e.g. age, income, culture, geographical area.

Nature of the market

Consumer durables:
Goods bought mainly for domestic use e.g. furniture, electrical appliance etc

Speciality products
These are goods that are bought for their snobbish appeal or luxurious goods e.g. Hama,
Limozin.

Industrial marketing
These consist of organisations/individuals/groups that buy specific goods for the production of
other goods (capital/producer goods) e.g. grinding mill, combine harvester, instruments.

Consumer marketing
It is aimed at creating and delivering products to solve the consumer’s needs who are the final
users.
It comprises buyers of goods/services for consumption and not for re-sale.
Goods bought are consumer goods/convenience goods which are largely foodstuffs.
Market share
It is the proportion of the firm’s sale to the industry sales expressed as a percentage.
It refers to all sales within a market that are held/accounted for by one brand/company.
Firm’s sales and total market sales can be measured by volume/sales value/units sold/by value
or revenue generated in the market.
Market share and increases in it is often the most effective way to measure the success of one
business’s marketing strategy against that of its competitors.
If a firm’s market share is increasing, then marketing of its products has been relatively more
successful than most of its competitors.
The product with the highest market share is called the brand leader. (How big your piece of
pizza is)

Formula: Market share = (Total sales of the business in a period of time/Total market sales in a
period of time)*100%
Analysing the trends in the market is important for the firm because it shows its position in
relation to the market as a whole.

Benefits of being a brand leader

Sales are higher than those of any competitor in the same market and this could lead to higher
profits/increase in profitability of the business.
Retailers will be keen to stock and promote the best selling brands. They may be given the most
prominent positions in shops.
A brand which is a market leader can be used in advertising and other promotional material e.g.
uniliver leading brands to guarantee quality of the new products.
Customers are keen to buy the most popular brands.

Market size
(How big the pizza itself is)

Total level of sales of all producers within a market place measured either by volume of sales
(units sold) or by revenue generated (value of the goods sold).
This information is needed for the marketing manager to asses whether the market is big
enough to be worth entering.
Firms can calculate the market share held by their own brands/products.
Identify whether the market is expanding or contracting/growth or decline of the market can be
identified.

Market growth
Refers to the percentage change in the total size of a market i.e. volume or value over a period
of time. (How much the pizza has grown?)
Refers to the rate at which total sales in a market are rising each year or falling where growth is
negative.
Different markets grow at different rates.
Some markets are growing faster than others. Some such as no-flat screen TVs are declining,
even car models.
Measurement of change in market size is usually expressed as a percentage of its original size.
It is always good to operate in a growing market.

Factors affecting market growth

(a) Economic growth
Increase in employment
Increase in demand
(b) Changes in consumer income
Increase in income may mean increase in demand
(c) Development of new markets
It is discovering of new advanced products which attracts potential customers.
(d) Development of products that take sales away from existing markets
Amendments of existing products to create demand (re-branding to make a product younger).
Rejuvenate consumer interest.
It also includes product improvement e.g. Colgate, Colgate triple action, Colgate total 12.
Try to reach out unmet needs e.g. econet send and receive money has extended services.
(e) Changes in consumer tastes
Usually happens with fashionable products.
Technological changes/innovations available can boost sales e.g. latest phones, cars leads to
most efficient/convenient or improved quality.
(f) Whether the market is saturated or not
In western countries, sales of washing machines sales of washing machines do not rise because
most household already have one.
Sale of laptops is still rising
Demand for cars is growing faster in the country

Importance of market growth

It can be easy to identify markets with the highest growth potential which is a key to success.
Firms that are able to forecast these markets more accurately are likely to experience the
highest rate of sales and profit.

Shortcomings
It is not always easy to measure market growth/share. It is also difficult to show market position
as market share/growth can be measured in volume/value. Firms selling expensive products are
likely to have higher market share in value than when measured in volume.

Market location
Some businesses just operate locally selling goods to consumers in the area where the business
is located e.g. laundries, florist shops, bicycle repair shops, watch repair.
Regional markets cover a larger geographical area to increase sales.
National markets expand to sell to the whole nation e.g. supermarkets such as OK and TM,
banking firms.
International markets. Give rise to MNCs.

Important marketing concepts

Added value/Product augmentation
Simply the difference between selling price and the cost of bought in materials or components.
E.g. cleaning and painting your car/motorbike before selling it makes it seem worth more in the
eyes of the purchasers.
E.g. 2, development of pre-wrapped sandwiches (sandwiches themselves are not changed but
the way they are packed and presented convinces the consumer0, thus they possess more value
and customers themselves pay more for them.

Marketing strategies to add value

Create an exclusive and luxurious retail environment to make consumers feel they are treated as
important people. This has a psychological effect of convincing customers that the product is of
higher quality and they will be prepared to pay for higher price e.g. department stores perfume
and cosmetics outlet, expensive hair dressers such as bald and beautiful, Mercedes Benz car
showrooms.
Use of high quality packaging to differentiate the product from competitors’ brands (this is
widely used in cosmetics and confectionery), e.g. luxurious boxes of chocolate bars.
Promote and brand the product so that it becomes a “must have brand”, i.e. brand sticking in
people’s mind e.g. Coke, Colgate, Levi’s jeans.
Create a unique selling point (USP). It refers to a special feature that clearly differentiates a
product from that of other manufactures/competitors e.g. smart phone. Development of USP
can be very expensive but very rewarding.

The key point to adding value is that consumers become wealthier and more selective in their
purchasing habits. The producer who is innovative is likely to capture consumer’s attention and
gain profit.

Niche Marketing and Mass Marketing

Niche Marketing
It refers to finding a segment of a market which can be targeted as its own (usually smaller)
specialised market and which as yet is not wholly catered for.

Advantages of niche marketing

If the market is not yet exploited by competitors, then filling a niche can offer a chance to sell at
higher prices.
Businesses have ability to focus on the needs of the individual customers and respond quickly to
changes in these needs.
The first company to identify a niche market can often secure a solid market position as
customers see the original product as superior. This is more if innovation is protected by a
patent.
Consumers are willing to pay a price premium for a more exclusive product, thus lead to
profitability.
There is little competition which makes it easy to gain market.
Small firms may be able to survive and thrive in markets that are dominated by large firms.
Niche market products can be used to create status and image.

Disadvantages of niche marketing

A successful niche may attract interest of large organisation/MNCs such that once they enter the
market small firms find it difficult to compete.
Lack of economies of scale may make costs too high to achieve satisfactory profits. However,
many businesses have found success through internet E-commerce leading to reduction in
running costs giving high profit margins.
Contain small number of consumers. Any change in consumers tastes/buying habits could lead
to a decline in sales.

Mass Marketing
It refers to meeting the needs of a very large number of potential customers.
It is the selling of the same product to the whole market with no attempt to target the groups
within it. E.g. Coca-cola, Mazoe, Toothpaste, fizzy drinks, Microsoft computer software.
Product can also be marketed in many different countries (Global marketing).

Advantages
Business can manufacture in large quantities and average costs can be reduced as business gains
economies of scale.
High sales at lower prices mean that mean that costs are spread over a great number of units.
This may mean that due to EOS a firm may afford expensive advertising; even though profit
margin will be low, actual profits will be high due to the volumes sold.
Products are aimed at large number of people/ potential customers – revenue becomes regular,
thus reducing cash flow problems.

Disadvantages of Mass marketing

It is often expensive to set up production facilities to provide mass marketed products.
Products can face stiff competition in some market segments.

Market segmentation
Refers to a marketing strategy where a broad heterogeneous market is subdivided into smaller
homogeneous segments/clusters.
The segments are subgroups of the whole market in which consumers have similar
characteristics.
It involves identifying different segments within a market and targeting different products or
services to them, instead of selling one product to the whole market.
To be effective, firms must carry out a market research and analyse the total market to identify
specific consumer groups in them.
Successful segmentation requires a business to have a clear picture of consumers in the target
market it is aiming to sell in.
A picture of typical consumer need to be build up to help with market research, sampling,
designing a product, pricing, promoting the product
This is called the consumer profile.

Consumer profile – is a quantified picture of consumers of a firm’s products, showing

proportions of age groups, income levels, location, gender and social costs.

Ways of segmenting the market

 1) By Demographic differences.
Demographic is a study of population data and trends.
Is a statistical breakdown of the people who buy a particular product or brand.
For example what percentage of consumers aged 16-25? What percent of male/female.
Therefore a house construction firm will use information on these factors to determine which
segment of the market; a block should be aimed at.
That is should there be a retirement flat with a resident caretaker?
-Should there be a small studio flat for young single people.
Demography is by age, sex, gender, social class, income, family size and region.
Main uses of profile information are:
-For setting quotas for research surveys.
-For segmenting a market.
-For deciding in which media to advertise.
2) By Geographic differences
 i.e. by region
 Consumer tastes may vary with different geographic areas; therefore products supplied
have to be more area specific.
 Geographic differences might result from cultural differences.
 Accurate and detailed market research information would be essential because of
geographically or spread markets in which goods are sold.
 For example, alcohol cannot be promoted in Arab Muslim countries.
 May also result from climatic differences
 Competitions/lottery type promotions are illegal in some countries.
 Advertising jeans or ice-creams with picture of half naked actors could not be tolerated
in some countries.
 Even product names have to be changed to suit the language of the countries.

Psychographic differences/factors

 Groups customers according to their attitudes and values, opinion, lifestyles, personality,
social class.
 E.g., sports products may be aimed at those who are interested in sports.
 Chocolate manufactures have identified two categories of chocolate eaters
(a) Depressive chocolate lovers who eat chocolate to unwind predominantly during the
evening
(b) Energetic chocolate eaters eat chocolate as a fast food and live life at a fast pace.
 Mobile phones provide services such as internet access for business travellers.
 Travel companies target holidays at families with younger children.
 An individual’s social class may have a greater impact on their expenditure patterns. This is
largely due to different incomes received by different classes. The higher the income
earned the more they earn they spend it on luxurious activities e.g. hunting, golf, outings to
resorts.
 Middle class tend to have an attitude towards education of their children and they tend to
spend larger amounts on it for their children.
  Increasing interest in organic food shows how common values and opinions held by
consumers can also be used to group them.
 Lifestyle may relate to activities undertaken, interests and opinions e.g. looking at favourite
programs always.
 Personality by which an individual is recognised as being unique. A well known person in a
certain field e.g. entertainment.

By behavioural segmentation
 Attempts to segment the market according to how consumers relate to product.

Methods of Behavioural Segmentation

(a) Usage rate

 When consumers are categorised according to quantity and frequency of their purchases is
whether they make repeat purchases, buy impulse, want high quality.
 E.g. cross boarder bus companies can give rewards such as a free ticket and a t shirt to
travellers who buy tickets from the up to a say five tickets accumulated.
 British Airways executive club.

(b) Loyalty
 Consumers are categorised according to product loyalty. TESCO, which offers discounts to
regular customers.

(b) Time and date of consumption

 Consumers often consume particular products at particular times and dates.
 E.g. breakfast cereals are usually taken in the morning. Manufacturers of these cereals
also encourage consumers to have their product in the evening.
 Bars and restaurants have Thursday nights for older singles and Friday nights for younger
consumers.

When is the successful segmentation?

 The segmented unit should portray the same behaviour.
 The segments should be sustainable and profitable.
 The organisation should have enough resources to meet the requirements of the
targeted market.

Segmentation, targeting and positioning

 Businesses develop marketing strategies for particular of a market.
1) Differentiated strategy
 Would aim to target different market segments with different marketing strategy.
 E.G a detergent manufacturer might sell cleaning products to consumers and cleaning
costs.
 But could use different packaging for two markets and offer cleaning cost much larger
packages.
 Could also use different advertising and promotions in the two market segment.
 2) CONCENTRATED MARKETING
 Focus on just one market segment- e.g. luxury brand such as Gucci Dior concentrate on
selling to consumers with high incomes by producing high quality expensive clothing.

Planning a marketing strategy
Identify the market

Market segmentation

Develop customer profile

 An analysis of characteristics of consumers in the market segment

 E.g. age, income, budgets, channels through which purchases are made and why
they buy the product.

Evaluation of market segments

Which market segment is worthwhile
targeting

Market targeting

Select market segments/to target

Vacuum cleaner/manufacturer often
target more affluent people to increase
sales

Position for each market segment to

target - Consider competition it faces.
How it differentiate its products

Market Positioning
Developing a marketing mix for each
product Use 4Ps to suited market
segment – to cater for needs of market
and its customers (market oriented)

Benefits/Reasons for market segmenting

 Successful market segmentation should allow a business to sell products overall and
perhaps increase its profit.
 By identifying different segmentation a business should understand its consumers
better and greater knowledge about its consumers will allow the business to vary its
products to suit their needs.
  It might enable a business to target particular groups i.e. they are tailored to match
requirements of the market.
 It might allow a business to market a wider range of differentiated products.
 Customers may feel that their needs are being better targeted and develop loyalty
to the business.
 Facilitate better identification of marketing opportunities where a firm
drop/abandon unprofitable markets to more lucrative/lucrative ones.
 Enables the business to concentrate its efforts on a target group which might reduce
the costs of doing business.
 Develop product features that are unique to each particular segment which help the
cost to charge different prices so as to minimise profit at low cost.
 Semi levi /price discriminating may be used as revenue and profit.
 Easier to manage.
 To allocate resources to satisfy needs of a particular group.
 Enables groups in the market to be identified and this might then be successfully
exploited.
 It gives a competitive advantage in a particular segment.
 Enable small firms to concentrate their effort on one segment competing with large
firms.

Drawbacks
 More resources are needed to produce differentiated markets.
Higher research and development products promotional and administration costs are
inquired.
 Organising might fail to segment the market property.
 Excessive specialisation on certain segments may create problems as consumers
change their tasks/habits.
 Production and stock holding costs might be higher than for a business just
producing stocking one undifferentiated product.
 Extensive market research is needed.
Market research
 Is the systematic/process of collecting or gathering, analysing and presenting of
primary and secondary data on buying habits lifestyle, usage and attitude of
potential buyers/customers and analysing data about competitors and the market.
 The intension is to get evidence that can enable production and marketing decisions
to be made. It’s all to do with finding out consumers needs.
 Their reaction to different price levels.
 Alternative forms of promotion/new types of packaging.
 A preferred means of distribution.
Information from market research
 What price to charge.
 What product to produce.
 What features to make on a product.
 Which promotion is the most effective.
 Where to place the product (decision about 4ps).
 Information can be used for forecasting/predicting and considering the
changing conditions of customer’s needs.

Elements of the market research

1) Market research-evaluation of the existing product.
-consumer profile age/income
-future and potential markets
-customer behaviour
-markets segments
2) Product research-evaluating of the existing product
- involves investigations of new uses of existing products e.g. bleaching, dying.
- Water treatment
-cleaning agents
-product variations/versions e.g. raspberry vs. mazoe
-Packaging research.
-Sales potential of new products.
-Product development i.e. changing aspects of goods/services to meet changing needs of
existing customers/target different markets.
-Research into pricing policy.
3) Sales research
 Examining sales outlet and agencies.
 Evaluation of sales methods.
 Measurement of the effectiveness of sales people.
 Planning of sales.
 Analysis of distribution system (channels of distribution).
 Identification of suitable outlets.
4) Promotional research.
 Analysis of the effectiveness of promotional activities.
 Media research (appropriateness of various media).
 Formulating of advertising themes.
5) Business economics.
 Micro and Macro economic environment or economic trends

 Export marketing research-export information.

6) Motivation research.

 Concern the analysis of motives that concern customer’s responses and reception
value.
7) Computer research.
 Looks at research into the countries of competitors’ market share.
8) Market share.
 To know the status of competitors.
 Identification of unique servicing points.
THE NEED FOR MARKET RESEARCH
  To reduce the risk associated with new product launch.
 To predict future demand changes.
 To explain patterns in sales of existing products and market research.

 To asses the most favoured design, flavour, styles, promotions, packaging for a
product.

RESEARCH METHODS/INFORMATION GATHERING

 Marketing research involves instruments e.g. questioners and procedures,

sampling that are used to collect information.
 Information for marketing decisions is gathered in two main research forms
Primary source and secondary source.
Main sources of data/information

1) Internal sources.

They are useful when analysing the performance of the business.

 Sales record figures.
 Accounting records
 Customer complains book/opinion.
 Quotation book.
 Invoice book.
 Annual reports.
 Stock movements.
 Company reports.

2) External sources

 Might be used for business start –up to understand the market.

 Yellow pages.
 Newspapers.
 Central statistics.
 Enterprise agencies.
 Banks.
 Trade associates (state of the market).
 Professional bodies.
 Chamber of commerce.
 Office /market publication
 Population census.
 Economic trends.
 Family expenditure survey.
 Social trends.
 Local library.
 Internet/website.
 (2) Primary research data.

 Collects first hand information that is related directly to a firm needs which does not
already exist.
 Data that is tailor-made to a firm’s own product, customers, market.
 Is data not processed, not analysed, not organised by any statistical records.
 Can be carried out by field work through interviews, observations, experiments.
 Involves collection of new information on the new problem facing the firm.
Format:
Uses- consumer surveys, consumer panels, discussion groups, opinion polls, test marketing,
retail audit, observations.

Methods of Primary/field Research

It can be divided into quantitative and qualitative Research.

QUALITATIVE
 Research into the depth/motivation behind consumer
behaviour/habits/opinion/feelings.
 Is usually expressed in terms of why people feel or behave the way they do.

Techniques used/employed to collect information

Group discussion/focus groups of people within targeted market for the products which are often
undertaken by psychologists. Techniques are employed to understand attitude, beliefs, and
intentions of the consumer.
 Consumer panels
 Focus groups/group discussions
 Personal interviews
 Telephone interviews
 Postal interviews are common

Advantages of primary research

 Up-to-date, therefore more useful.
 Relevant information – collected for a specific purpose
 Confidential. No other business/competitor has access to this data.

Disadvantages of primary Research

 Costly to pay marketing agencies for detailed customer survey and other market reports.
 Time consuming
 Doubts over accuracy and reliability largely because use of samples may not represent
the population fully.

Quantitative data
It refers to data which is measure in numerical terms. It is a way of discovering data such as:
 A product’s consumer profile
 The way a market can be segmented
 Probable sales at a given price level
 Estimated sales of a new product
 The results of a blind product test.

Quantitative research techniques

Observation and Recording

 Market researchers/Retail firms watch consumers in their shops.
 They observe and record how consumers behave.
 They can count the number of people/cars that pass through a particular location in
order to assess the best site for new buildings.
 They can also observe the people in a shop to see how many look at new displays; take
products from shelves, amount of time they spend making decisions to buy.
 A simple stock check can be used to record sales over a period of time.

Drawbacks
 Results may be clustered if customers become aware that they are being watched.
 Observations do not give clues as to why customers behave the way they do.
 It records only what happens.

Test marketing
Refers to the production of a limited quantity of a new product or taking a product to a
restricted area before a full scale, national launch is made.
 It involves promoting and selling the product in a limited geographical area and then
recording consumer reactions and sales figures.
 To be accurate, the region selected must reflect closely as possible the social and
consumer profiles of the rest of the country.
 Test marketing reduces the risk of a new product launch failing.
 Evidence is not always accurate if the total population does not share the same
characteristics and preferences.

Consumer surveys
 They are associated with the use of questionnaires, interviews, sampling procedures.
 Can be used to obtain both qualitative and quantitative data.
 Involves asking potential customers for their opinions/preferences.
 When conducting a survey researchers should know

(a) Who to ask? (sample size, sampling method i.e. quota sampling, strata etc)

Sample size
 Sample that the researcher has to come up with has to be a true representation of the
whole population.
 Appropriate sample varies with size of the market and population under survey.
 The greater the population under survey the larger the survey so as to get more

accurate information.
 Should not be too small to avoid unnecessary expenses and bias.
(b) What to ask? (Questionnaire design)/ Properties of a good questionnaire)

 Clarify purpose of inquiry

 Devise clear, unambiguous/unbiased questions
 Use language which is simple to the respondent e.g.
 Avoid leading questions e.g.
 Avoid too many questions because the individual may become suspicious or bored.
 Avoid sensitive questions to do with one’s first names, exact age, income or income
bands.

(c) How to ask?

 Involves face to face interaction/ interviews, filling the information given by the
interviewee
 Postal interview when sampling. This survey covers quite a large geographical area.
 Telephone interviews.
 Consumer panels.

(d) How accurate is it?

 Assessing the accuracy/validity of the results.

Sampling
Sample
Group of people taking part in a market research survey selected to be representative of the
overall target market.

Sampling methods/type of sample

(1) Random sampling

Is one which gives each member of the group an equal chance of being chosen.
Is rather like picking an equal chance of being chosen.
The technique requires an up to date sampling frame, i.e. a list of all people included in the
survey.
Computers can be used to select randomly.
It can also make use the voter’s role/directory.

Benefits
It is straight forward and easy to implement

Drawbacks
Chosen sample may not have the same characteristics with the whole group/population
Systematic Random Sampling
The sample is selected taking every nth person/person from the target population until the
desired size of sample is reached. E.g. a supermarket may want to study the buying habits of
consumers.
Sample could be chosen by asking every nth person/customer entering the shop until the
required sample is reached.
Researcher must ensure that the chosen sample does not hide a regular pattern and a random
starting point must be selected.

Stratified sampling
It recognises that the target/population may be made up of many different groups with
different opinions.
These groups are called strata, layers of population and for a sample to be accurate it should
contain members of all these strata/layers. E.g. is where the school has to sample 100 students
in the school about soft drink preferences for the tuck shop.
People to be surveyed in each stratum should be selected randomly
It may be used when a product is designed to appeal to just one segment of the market.

Quota sampling
-Is similar to stratified.
-Interviews are selected according to different proportions that contain consumer groups make
up a whole target proportions.
- A researcher might be given a task to ask 50 males between 20-29 years of age (denim jeans)
30 females between 30-39 years.
-Once the target is reached no more respondent are asked.
-Can be cheaper and accurate to do it if the entrepreneur knows key characteristics of the
market.

Cluster sampling.
-Involves separating the proportions into clusters usually in different geographical areas.
-A random sample is then taken from the clusters which are assumed to be representative of
the proportion.
- Often when survey results need to be found quickly such an opinion polls.

Non-probability sampling
1) Snowballing sampling
-A highly specialised method of sampling where first respondent refers a trend/proportion.
-Involves stating the process of sampling with an individual or group and using these contracts
to develop more.(snow balls effect)
-Business operating is highly secretive may use the method of sampling
-Similarly firms engaged in producing highly specialised and expensive one off products for a
very high range of customers may rely upon snowballing e.g. firms engaged in the nuclear and
power generating industries, health, motor insurance cost.

2) Convenience sampling
-Members of the proportion are chosen based on their relative ease of access.
 -Sampling friends, fellow workers or shoppers in just one location.
Advantages of primary and secondary research/desk research
-Involves the collection of secondary data i. information which already exists
-Can be internal/external sources.
Secondary Advantage
-inexpensive i.e. often obtainable cheaply
-avoids repeating efforts
-quick to obtain without the need to device complicated data gathering methods
-easier to establish trends from records
-can preserve complete confidentiality
-enables cost effective data analysis

Disadvantages
-often out of date
-as it was originally collected for other purpose
-it may not be entirely suitable, so it may be intolerant to the current problem
-might not be available for new product development
-data collection methods and accuracy of these may be unknown

Primary advantages
-Up- to date and more useful.
-Relevant (collected for a specific purpose)
-confidential which means no other business has access to this data
Disadvantages
-costly to pay market research agencies for detailed customer survey and other market reports
-time consuming to conduct surveys
-doubts over accuracy and validity largely because use of samples may not represent the
proportion fully

A MARKET RESEARCH DEVICE

-Businesses are increasingly turning to electronic means to gather data their marketing
researches require.
-Questioners can now be sent out, answered and returned over the internet.
-Firms can also access vast quantities data retrieval offers them.
-E.g. this is possible with supermarkets that operate loyalty card schemes
-By scanning in total number and type of goods bought by each customer, firms have a complete
picture of what each customer purchases, how often, their age, gender and income
-They normally provide this information when obtaining the loyalty card.
-This allows retailers to target each consumer with advertisements and special offers.
-This form of targeted marketing is cost effective because firms are not going to waste money on
promoting say dog food to people who do not have dogs.

Cost effectiveness of market research

-Internet and cell phones make it easier to contact a wide range of potential customers the
older method of street survey or home visits to interview people
 -Even small to medium sized business can use electronic means of contacting large number of
customers over a short period .E.g. online marketing allows firms to conduct research projects for
just a few dollars.
-Use of cell phones increases the chance that they will respond to survey request especially if it is on
a free phone number.
-The cell phone means of survey can use pre-recorded massage and questions to which people
respond by using number on keypad or speaking the answers.
-These results are then automatically presented and analysed electronically.
-A well designed market research pays for itself in higher sales and profits.

Factors affecting the sampling methods

1) Finance available
-For small firms random sampling that gives a large sample can be expensive but for large business
enough resources may undertake market research methods that give more random results and use
large sample size.
2) Nature of the product
-Whether the product is the same for all customers (uniform) or carefully to meet needs of
individual customers or very small group of customers
(Bespoke)-made according to customer’s specifications e.g. suits, jackets or made to order.
-For products that are one-offs/bespoke/made to order the proportion which is likely to be small or
confined to one person/business.
-Sampling is likely to rely upon a small sample
-For products that are uniform a business will need to ensure that the whole proportion is properly
represented in a sample and this may mean a large sample size.
3) Risk involved
-A larger sample will reduce the risk of statistical bias and increase reliability of the financing from
the sample.
-Business taking a small risk might be prepared to rely on information from few customers e.g. a
small ice cream business with one shop might introduce a new flavour of ice cream after talking to a
few customers.
-If new flavour doesn’t prove popular with customers it could be withdrawn and replaced by
another.
-Large business would only rely on large sample risk associated with wrong decisions would be so
great.
4) Target market
-Nature of a product’s target market would influence the sampling e.g. if there is a small target
market for a product then the sample chosen is smaller.
-For products aimed at mass market with a range of consumers sampling methods will need to
reflect diversity and it is likely to mean a large sample.

Factors to make choice whether desk/field research

-time
-Cost involved
-availability of skilled researchers
-urgency of the need of information
-quality of information
-accuracy
-need for updated information since historic information may not be applicable to the current
problem facing the firm

Information presentation
-Market research produces vast amounts of data in both numerate and descriptive form
(raw/unprocessed data)
-Once analysed and presented for decision making it becomes information that can be used.

Presentation of data
-Numerate use of data might be presented in form of a table.
-Allows ease reference
-Tables can also be used to present mass data in a precise way.

SALES DATA FOR THE LAST 6 MONTHS

Month Sales ($)

1 230
2 250
3 290
4 300
5 350
6 320

Presentation of numeric data

-However they lack the usual impact of a graph or chart
E.g. step rises in sales in month 5 and decline in month 6 would be more obvious if presented
graphically.

BAR CHARTS
-They use bands of equal width but varying length/height to represent relative values.
-They allow easy compassion over time or between items.
-They come in various forms.

100

80

60

40 Profits ($M)

20

0
2008 2009 2010

A simple bar chart

HOW PROFITS ARE DISTRIBUTED

SALES BY PRODUCT

-Shows slightly more data

-easily comparison can be made
-numerical information can be shown by bars, or blocks.
-bar charts show results very clearly
-However –rather complex/difficult to read data or values.

PICTOGRAPH
-Is in form of a chart.
-Presents data in a similar way to bar charts. i.e. by pictorial symbols

A pictograph for GPA showing orders for aircraft in March 1999 for each year to 2007

2002 ++++++++
2003 ++++++++
2004 ++++++
2005 +++
2006 + ++++
2007 +++++
2008 +++
2009 ++ Key
2010 + Number of aircrafts 10 + aircraft

ADVANTAGES
-Graph tends to be more eye- catching.
-the method may be used in business representations to attract attention in reports to the
public
DISADVANTAGES
-Is not always easy to divide the symbols exactly.
-This makes it difficult to read precise quantities from the graph.

PIE CHARTS
-It is used to display data that need to be presented in such a way that proportions of totals are
clearly shown
-total amount of data which is collected is represented by a circle
-is divided into number of segments
-each segment represents the size of a particular part relative to total.
-size of each is determined by the angle at the centre.

HISTOGRAM
-A diagrammatic way of representing a frequency distribution in which the area of the block is
proportional to the value of the variable measured.
-the data collected by market researchers on behalf of cinema chain.
-it contains the age profile of a sample of cinema goers on Saturdays .
-the chart shows that no falls into various age ranges known as classes.
-total number of times each item occurs in each class is known as frequency.
-so total number of viewers in the 10-19 years range is 290 .
-in a histogram it is the area of the bars which represents the frequency while in the bar chart it
is the length or height of bars

The age profit of cinema goers on a Saturday

Age range Frequency

0-9 180
10-19 290
20-29 500
30-39 400
40-49 350
50-59 280
60-79 200
TOTAL 2 200

-Information might be used by cinema chain to plan a watching strategy.

-Frequency polygon shows the pattern of data.

LINE GRAPHS
-Most common type of graph used in businesses.
-Shows the relationship between two variables over time-time series graphs.
-Values of one variable are shown on vertical axes and the other values are placed on horizontal
axes.
-The two variables must be related in same way.
-Values of variables can be joined by straight lines or smooth curve.
-Time plotted on horizontal axes output on.

Advantage
-The way in which a leader can get an immediate picture of the relationship between two
variables
-Is also possible to take measurement from line graphs when analysing data.

CUMMULATIVE FREQUENCY CURVE

-Used when collecting data and recording it in a table.
-it is a total frequency up to particular item/class boundary.
-Is calculated by adding number of entries in a class to the total in the next class (a running total)
-The table below shows the weight of cereal packages coming from a production line in a
particular time period.

Weight falling within Frequency Cumulative

These ranges frequency

198 – 199 30 30
199 – 200 50 (30 + 50)
200 – 201 150 (30 + 50 + 150)
202 – 203 70 (30 +50+150+70)
203 – 204 5 (30+50+150+70+5)

-Independent frequency of weight depends on weight y-x.

270 pages weigh below 201,5 grams.

Spread sheet
-numerical data can be presented effectively using a spread sheet.
-spread sheet allows the user to enter, store and represent data in a grid on a computer
screen.
-as a word processor it is able to manipulate text.
Spread sheet which contains data

A B C D E F G
1 Item Jan Feb Mar Apr May June
2 Labour 20 210 230 210 200 230
3 Materials 100 100 110 130 100 110
4 Fuel 35 35 35 30 30 20
5 Overheads 25 25 30 30 35 35
6 Total Cost 360 370 405 400 365 395

Advantages
-user friendly
-numerical data is recorded and shown in a clear and orderly way to prepare text for
publication by checking and improving its accuracy.
-editing allows figures, text, formulae to be changed easily to correct mistakes or make
changes in data.
-its publication is easy to copy an entry or series of entries from one part of the spreadsheet
to another.
-user can add, subtract multiply and divide the figures entered on the spreadsheet.
-fast calculations
-spreadsheet programs can allow graphs and diagrams to be drawn from figures.

Disadvantage
-expensive to install
-One problem is printing the results they tend to print everything being used which is time
consuming and wasting.

Databases
-it is an electronic filling system
-allows a great deal of data to be stored
-businesses which use computers will compile and use databases.

Advantage
-no duplication of data
-large quantities of data can be stored

Disadvantage
-difficult to set up because of the structure it involves.

Marketing mix
-refers to the four key decisions that must be taken in the effective marketing of product i.e.
4 Ps-product design and performance
 -price
-promotion
-place
-process
-physical evidence

Product is the key part of marketing mix e.g. consumer goods, industrial goods etc.
-for marketing to be effective a business has to be aware of the product lifestyle.

Product life cycle

-refers to a study of a product
-shows the stages that a product passes through over time and sales expected at each stage.

Factors affecting the length of product life cycle

a) Durability of the product
-durable products tend to reach the maturity stage quickly unless new demand is created.
-for example if the item need to be bought only once(such as sandwich maker
,toaster,deepfreezer and microwave)then market saturation can hit demand /dry up as
those who want the item have it.
b)Fashion
-fashionable products tend to have short life cycle.
-that is if the product’s sales grew because of fashion it is likely that they will die quickly for
the same reason.

c) Technological change
-can be very significant in turning the customer away from a product that now seems
absolute.
-may shorten the life of the product.

Phases/stages of the product life cycle

-the theory that all products follow a similar life

Development/Conception Introduction/Launch Growth

Idea generation Birth

Decline Maturity

The Product Life Cycle

Sales/
Profits

Product Introduction Growth Maturity Decline

Development Sales
Profits

O Time

Development/conception/idea generation
-refers to a systematic set of new product
-product is being reached and designed
-markets would obtain new ideas from major internal sources such as customers, distributors,
suppliers and competitors.
-information could also be from formal research, listen to customer complaints.
-markers can plan on unique features to put on the product.
-if a new idea is considered with pursuing then a prototype/ model might be produced
-decisions will then be made about whether or not to launch the product.

Large number of products fails at this stage

Reasons
-most businesses are often reluctant to take risks associated with new products
-costs will be high as there will be spending but receiving no revenue.

Introduction/Launch
-product has just been introduced such that it is usually characterised by the:-
a) Low sales
b) Slow growth
c) Losses
d) Very low profits/product tends to be unprofitable.
e) High cost of production due to promotional/advert cost to make people aware about the new
product, distribution cost, need to build a new production line.
-high risk of product failure
-prices may be set to high cover promotional cost or low to penetrate the market
-if advertising campaign is successful sales will build up gradually.
-the implications being that the customers would want to test the product.
-if consumers are satisfied, they make repeat purchases.
-length of this stage will vary according to product.
-introduction of brand new technical products e.g. computers can be quite long.
-it takes time for consumers to become confident that once the product can be an instant hit
resulting in rapid sales growth e.g. fashion products, fast moving goods.

Growth
-this takes off gaining the market share.
-once the product is established consumers are aware of it.
-at this early stage, the majority of new buyers grow.
-sales begin to grow rapidly
-new customers, the product and there are repeat purchase
-costs may fall as production increases
-product then becomes profitable.
-if it’s a new product and there is rapid growth in sales, competitors may launch their own
version.
-this can lead to a slow down of rise in sales.
-business may need to consider their prices and promotion e.g. a high price charged initially may
need to increase to encourage brand loyalty.

Reason for slowing down of sales

-in a competition as competitors enter the new market business may loose customers if
standards do not match.
-some technological changes that may make the product become less appealing.
-Some changes in customer tastes.
-saturating of the market.

The Maturity and Saturation Stages

It occurs when all those who want the product already have one such that they may not
frequent the shops to make repeat purchase.
Growth in sales will level off.
Product has a stable market share at this point.
Sales will have picked and competitors will have entered the market to take advantage of
profits.
As more firms enter the market, it will become saturated.
Some businesses will be forced out of the market as there are many firms competing for
consumers.
Packaging also becomes important to retain/keep the market share by capturing sales from
weaker rivals.

Decline
Sales fall/decline steadily due to:
Changing consumer tastes
New technology/introduction of new products
This product will lose appeal to customers
Entry of other competitors
Saturation of the market in terms of durable goods e.g. furniture
At some stage it will be withdrawn or sold to another business/replaced
It may still be possible to make profit if a high price can be charged and little can be spent on
promotion and other costs.

How and Why Product’s lifecycle vary

 Not all products follow the above shape of the cycle
Some products are introduced and die quickly, other stay at the mature stage for a long time
Some enter the decline stage and are cycled back through strong promotion
The P.L.C. concept can also be applied to what are known as:

Styles
 It is a basic & distinctive mode of expression.
 Styles appear in clothes (formal/casual)
Sales
 Once a style is invested, it may last for
generations passing in and out of vogue.
 A style has a cycle showing several periods of
renewed interest.

O Time

Fashion It is a currently accepted or popular style in a given field.

Fashion tends to grow slowly, remain popular for
Sales a while and then decline slowly.

Time in years

Fad

Sales

Time in years

A temporary period of unusual high sales driven by consumer enthusiasm and immediate
brand/product popularity
These are fashions that enter the market quickly and get adopted with great zeal, reach a peak
early and decline fast.
For such products there is a very short period between introduction and decline
The shape of the product’s life cycle in introduction and growth stage will be very steep and
decline very sharp.
They last for only a short period and tend to attract only a limited number of consumers.
Life of a product is also affected by some factors like effectiveness of management of changes
in consumer tastes and preferences and changes in technology.

Extension strategies

PLC shows that the sales of products decline although at different rates.
Firms can extend the life of a product by using the following extension strategies:-
(a) Find new markets for existing products e.g. having a boom of sporting clothing largely due to
use of sports clothing as fashion wear.
(b) Developing a wider product range e.g. developing new versions of the product.
(c) Changing the appearance/format or packaging e.g. Coca-Cola is available in cans, flass or
plastic bottles.
(d) Encouraging people to use the product more frequently e.g. manufacturer of breakfast
cereals have used promotional companies to encourage use of their products during
different times of the day.
(e) Gearing the product towards specific target markets e.g. mobile phone companies have
packages that are geared towards teenagers.
(f) Changing the ingredients or components e.g. CDs, Mp3 players
(h) Updating designs e.g. car manufacturers regularly update models.

Product Life Cycle and Cash flow

Cash flow

Sales
Cash flow

A B
O Time

Before a product launch, a business will spend to develop the product and yet no money is
coming into the business from sales.
Cash flow is likely to be negative.
At launch (at point A), the product begins to sell
Cash flowing out of the business is likely to be greater than inflow. Therefore, cash flow will be
negative.
Sales have to take on promoting the product.
At Growth period, revenue is greater than spending at B. Cash flow is positive. This is because
sales will be increasing and average cost may be falling s output increases.
At maturity stage, cash flow will be at its highest. Product will be earning its greatest revenue
At the decline stage, sales will fall and cash flow will decline.

Uses and Problems of PLC

Why might a business be interested in analysing the PLC of its existing product or new product?

(a) It will illustrate the broad trend in revenue that a product might earn.
(b) It will identify points at which a business may need to consider launching of new products as
the older ones decline.
(c)It will identify points at which extension strategies may need to be introduced.
(d) It may help a business to identify when and where spending e.g. on research and
development at start or on marketing at introduction and when extension is required.
(e)It will give an indication of profitability of a product at each stage of cycle.
(f)It may help to identify the points at which a business should no longer sell a product.
(g)It will help a business to manage its product portfolio.
(h)It will help a business to plan different styles of marketing.

HOWEVER,
While it may show changes in the life cycle, it may not be effective in predicting future sales of
the product and how sales will change in future.
Ever product is likely to have a different PLC
Model does not determine the decisions e.g. a product that is in a decline stage does not have to
be automatically withdrawn.
Sales may fall due to lack of promotion or poor distribution.

Attribute/features of a product
The term product refers to both goods and services. Can be seen as a combination of attributes
like:-
(1) Physical attributes
(2) Functional attributes
(3) Economical attributes
(4) Symbolic attributes

Physical attributes
E.g. a product made of glass/ wood. It refers to the shape, height, colour, packaging, weight,
brand, size, logo/label, texture or name, flavour, quality.

Functional attributes
Concern the functions that a product is expected to perform e.g. used for drinking water.

Economic attributes
It is concerned with the value for money.
Many people may buy a product simply because it is perceived to be of good value e.g. Hyundai
excel was described as that car which gives a comfort ride.

Symbolic attributes
These are given by the society as a whole or by groups of individuals e.g. young man buying a
sports car to appear young, strong/aggressive.
Product Portfolio/Product mix
It refers to a range of products or brands held by a company that provide it with diversified
sources of income.
Ideally, the portfolio should range for different markets and different stage of the PLC.

Factors affecting the Product portfolio

Production costs
Activities of competitors
Technological Environments
Income (earnings of people)
Buying habits
Increase in population leads to increase in demand of the product.
Nature of the product (it is necessary to have a portfolio with products at various stages of the
PLC)

Product Portfolio analysis

Is a process/strategy by which management evaluate the products.
This enables the business to allocate strong recourses into a more lucrative business and phase
down the weaker one. P.P is made up of product lines.
Product line is a group of products which are similar e.g. televisions are a product line including
flat screen and HD wide screen.
With constant launch of new products, a business can make sure that a vacuum is not created as
products reach the end of their life.

Sales

Product X
Product Z

Product Y

O i ii iii Time

The diagram shows how the business can manage its product portfolio e.g. a business that aims
to launch three products.
As one product is declining, another one is growing and further launches are planned.
At (i), sales of product are growing
Product Y has been launched so that at point (ii) when sales of product X have started to decline,
sales of Y are growing and product Z has been launched.
A useful technique for allowing firms to analyse their product portfolios is the product portfolio
matrix developed by Boston Consulting Group.

Boston Matrix
(1) Market Growth
How fast is the market for the product growing?
Market may be declining or expanding
Sales of a product in a fast expanding market have a better chance of growing than a product in
a segment/declining market.

(2) Relative market Share

How strong is the product within its market?
Is it a market leader that other products follow?
B.M. highlights the current position of each firm’s products in terms of Market Share and Market
Growth.
It allows the firm to know the next step to take after the analysis was made.

The Boston Matrix

The Boston Matrix Grid

High Low
2. Growth Stars 1. Introduction
High Wildcat/Problem Children
?

3 Maturity Cash Cows 4 Decline Dogs

Low
$

High Low

Problem children/Wildcats/Question marks

It refers to products with a relatively low market share in a high fast growing market
A new product with a small market with a small market share of a growing market
Can be a problem for a business because it is unclear what should be done with these products
If its performing weakly it is unlikely to be profitable-cash is likely to be 0 or negative
To increase what share business needs to inject high levels of investment and heavy promotional
costs to help it become established in the market finance could come from the cash cow
Future of the product might be uncertain therefore quick decisions need to be taken if sales do
not improve such as revised design, relaunch, and withdrawal from the market
It’s difficult to forecast the future of the product it will be questionable due to competition and
law
High failure rate but potential for future success as it is selling in market sector that is growing
fast meeting the needs of customers in the market
Is a star of the future?
Without new product development firm could miss opportunities and loose market share
Stars product
Are products associated with high market growth and a relatively high market share
Are valuable to the business
A successful product as it is performing in an expanding market
A real revenue earner
May bring new customers to the business who may well become loyal to the brand
Marketing resources/promotional cost investing in new production resources should be
concentrated on this type of product in order to maintain the market share or tend off
competition
Fierce competition is likely to be faced and may still need a great deal of cash investment to
remain competitive
Cash flow maybe nearly zero
Although profits will be high spending will also be high

Cash flow
A product with high market share in a low growth
Is well positioned in the market and is likely to be profitable
A well established product in a mature stage
Reaching saturation stage
Creates high positive cash flow and is profitable
Will be little need for investment/marketing expenditure as a result of high consumer
Are net generators of funds thus are milked to supply finance for marketing of question marks
and stars
Sales are high relative to promotional costs

Dog
Product with relatively low market share in a market with low growth
With little to be gained from any further investment
Have poor prospects for future sales and profits are a (lost cause)
May generate enough cash to maintain themselves but do not promise to be large sources cash
Market may be straight which would mean competition leave the market giving remaining firms
the opportunity to receive their products and market share
May be kept going because they complete a product line and can possibly received or may need
to replaced/withdrawn from the sector

Uses of Boston matrix

Used as a tool of analysis i.e. for analysing the product portfolio
Determines position of your product ensuring effective market
By identifying the position of all products of a firm, a full analysis of the firm’s portfolio if
possible
It helps to focus which product needs support and which need corrective action
The strategy/action which might be needed to boost:-

Problem child is-

Building i.e. supporting problem child production with additional advertising or further
distribution outlets
Finance for this could be obtained from established cash cow products.
Stars-
Holding i.e. continuing to support for stars products so that they can maintain good market
position
Work may be needed to revitalise the product in the eyes of the customer to sustain high sales

Cash cow-
Milking
Done to cash cow i.e. taking positive cash flow from established products in the portfolio (cross –
subsidisation)

Dog-
Divesting i.e. identifying the worst performing products lose and stop/withdrawing of
resources/workforce in investment fro badly performing products

Evaluating of the product portfolio techniques, the PLC and Boston matrix
-these two can be use of use to marketing managers especially when analysing the performance
and current position of the existing product
-when planning action to be taken with existing products
When planning the timing of the introduction of new products
-PLC enables managers to know the various behaviour of the product detailed and continuous
research will help

Limitations
No technique can guarantee the business success, the success depends on the accuracy of the
analysing by the marketing managers and skills possessed in employing appropriate marketing
strategies
Techniques are not very useful predictive measures for they do not tell what happen next to any
product that may affect the current position of the product e.g effect of competitor’s decisions,
technological changes which may cause obsolescence, fluctuation of economic
environment/economic instability

(NPD) New product development

Means fulfilling taking objectives by developing new product /modifying, upgrading the existing
once because completion is strong
New product refers to a new innovative product distinct from anything else in existence
Or an initiative product
A simulated adaption in which the customer perceives a difference fro the existing product
New products are essential to replace the existing products
The process of NPD can market led/market oriented (this is concerned without the customers
want and what competitors are providing

New products pass through 5 stages

1) Generating ideas –generate idea for new plan
-identify gaps through research and fill them
-own new product
 -adapt, improve upon new features

2) Analysis-analysis of those ideas generated

-find out if the product is marketable
-if consumers wish to buy it to allow the firm to make profit
-business must also decide if the product fits in with customers objectives, if legal and
if technology is available to produce it

3) DEVELOPEMENT
Involves technical development of product in the laboratory or production of the prototype
(prototype is a sample product manufactured on experimental basis to see if the engineering and
ideas work in practise)
Can be tested both from engineering and marketing research perspective before the firm decides
whether to start on a full production

4) The device process

Test marketing
Occurs when a new product is tested
Advantage –high reliability of results gained to avoid wastages
Disadvantage –costly
-allows competitors to see the new product and gives them a chance to take
counter action before national launch

5) Launch
Problems found during testing must be solved
The process of judging whether or not its worthwhile proceeding with the product development
is known as screening
After screening process new product ideas are developed into product concept in which the
market benefits of product and its position in relation to rivals is tested by means of consumer
research
When the product has passed the screening process the firm is prepared commit large sums of
money to the physical development of the product that can be marketed

Influences on new product development

Availability of finance and human resources –develop new products
Technology
Competitor’s action market constrains
Entrepreneur skills of managers and owners
Legal constrains- firms produce products in accordance with the legislation e.g. pharmaceutical
company wishing to develop new products must adhere to health legistration
The development process converts the prototype (idea of new type of product into saleable
product)
Is a way of adding customer value?
Design offers one of the most potential/strong/powerful tools for differentiating and positioning
cost product
Good design contributes to a product’s usefulness as well as its outlook
Can attract the attension, improve the product performance at cost and give the product a
strong competitive advantage in target market

Reasons for innovation

Leads to improved products
Increased market share and sales
Satisfies unmet needs
Creates a new market, new brands

Branding
Establishing/giving the product a trade name/mark/logo/sign symbols/design that allows
consumers to identify goods/services e.g. Colgate, orange crush, Heinz baked beans
Reason for branding
To differentiate the products from the competitor’s products
For easy identification of the product and ensure instant in store product recognition
To facilitate easy advertising of the product
To segment the market
Successful branding add value to an item and it creates brand loyalty
Installs confidence in quality of goods
Enables goods to be sold on self service
To gain flexibility when making pricing designs
Brand recognition to develop a brand image

Types of brands
1) Manufacturer’s brand
Are brands created by producers of goods/services?
Goods/services bear bear producers name e.g. Kellogg’s cornflakes, Gillette razor or Dell
computer
Manufacturing is involved in production and distribution, promotions, pricing decisions

2) Own –label brands / distributor/private brands

Products which are manufactured for whole sale and retail
Port-o gold OK
Super saver TM
Mark and Spenser food

3) Genetic brand products that only contain the name of the actual product category rather than
the company/product name e.g. aluminium foil, carrots, aspirin.

Brand loyalty
It exists when consumers repeat purchase of the product on a regular basis.
Such customers are unlikely to be price sensitive; therefore the product’s price elasticity will be
low.
This enables the trader to increase price without much effect upon demand.
Brand loyalty can be:-
(1)Active loyalty
(2)Passive loyalty

Active loyalty
This stems from a conscious decision on the part of the customers that they prefer the taste,
quality or image to that of the competitor.

Positive loyalty
Stems from the consumer inertia, from people’s tendency to become used to purchasing pattern
from which they do not bother to change for new products.

Packaging

It refers to all the designs and cost elements involved in the physical protection and presentation
of the product.
It is regarded as the silent salesman.
Any eye catching product/design that conveys the right image about the product and can be
used as a promotional tool.
May include:
(1)Primary container e.g. tube holding toothpaste
(2)Secondary package i.e. the box that covers the tube which is thrown away when a product is
about to be used, box carrying six dozens of tubes of toothpaste or shipping package necessary
to store.

Factors to consider when deciding upon packaging

(1) Weight and shape
These can affect the cost of distributing a product e.g. bulky packaging may mean high
distribution costs.
(2)Protection
Products must not be damaged in transit. They must be protected against light, dust and heat.
(3)Convenience
Packaging must be easy to handle by customers and distributers
(4)Design
Design of packaging should be eye catching and help distinguish it from others
Colour is also likely to be important
(5) Information
Package should contain the information required by the consumers e.g. how the product should
be used, ingredients contained.
(6) Environmental factors
Impact of waste material upon environment and response of manufacturers to this pressure has
been to use recycled material

Importance of packaging
Good packaging creates instant/quick consumer recognition of the brand or company
Protects or keeps the product clean
Adds value
Acts as a media (silent salesman) e.g. cosmetic come in beautiful packages that are attractive
Increased competition plus cluster on retail store shelves means that packages now must
perform many sales tasks i.e. from:-
(i) Attracting – gives the product a new look when given a new package
(ii) Attempts to describe the product and how to use the product, quantity, storage, warnings
(iii) Making the sale-

There is:-
(a)Re-use packaging
– the package can serve other purposes once the product has been consumed e.g. cobra
containers for storing other items, lactogen containers for putting salt/sugar, salad cream
bottles for putting salt or tea leaves.
-it stimulates repeat purchase as consumers attempt to acquire a set of containers

(b) Multiple packages

Placing several units into one container e.g. soft drinks, beer, chocolates
(c) Family packaging
Involves use of similar packages for all products for the same company e.g. Heinz beans or jam.
Main aim is to get goodwill associated with known packages transferred to the new product

Why firms develop new products

To replace declining products
To enter new markets
To counter competition more effectively
To achieve dominance
To increase the market share and profitability
To diversify e.g. spreading risks and survive
To maintain firm’s competitive position as innovator
To utilise spare capacity

Criticisms for packaging

It depletes natural resources
It increases the cost of production and cost of the product
Health hazard e.g. plastic bags to children/livestock and environments
Can be deceptive e.g. if package is very attractive

Value analysis (VA) or value engineering

Is a small study of each aspect of a product to see if it adds a sufficient value to justify its cost
(weather a product can be made more efficiently with reducing appeal?)

Cost conduct value analysis to look at both new and existing products to see whether they are
designed in a way that satisfies consumers. In terms of what the product looks like, what it cost,
how well it is performing its job.
Achieving this requires a combination of market research, cost information and engineering
skills. Therefore, there are three features involved in design of a new product.
 Performance or quality

Appearance Economy of the manufacturer

(a) Generally VA means the identification of costs that could be cut either by using cheaper
material or redesigning a product to use fewer components or change manufacturer’s methods
allowing the business to make profit, hence cost effective (economy of manufacturer).
(b)VA is also interested in the function that products has for the business and the consumers.
Does the product have features looked for by consumers or is it reliable? (Performance or
quality)
(c)the outlook of the product and efficiency of the product (appearance). Therefore VA is team
effort with all relevant depth working under the guidance of a specialist value engineer.

Benefits of value analysis

The product produced will market the legal requirements
Profits can increase whilst still giving value for money
Even unique products need to be produced economically to allow reasonable prices to be set
Requires experts from different departments to work with

Limitations
It might be necessary to “over engineer” the product to ensure high safety standards.
When a product does not have competitors competing for it, appearance and cost will be much
less important than reliability and performance.

Product Failure
It refers to a situation when a product fails to get/gain consumer acceptance.

Causes/Reasons
Poor timing of production or introduction i.e. may be introduced too late when similar items are
on the market or too early when the market is not ready for it.
Inadequate market research or misleading market research findings
Product defects/deforms i.e. failure to meet the purpose for which it was designed e.g. Zhing-
Zhong/perform badly/poorly/it may be complicated to use
May not offer significant competitive advantage over existing products
Activities of competitors i.e. ability to copy as soon as the product is introduced, competitors
may come up with a product which is equally the same because it is easy to copy thus bear low
initial costs and sell at low price.
Lack of an effective marketing effort i.e. failure to train staff adequately to handle new products
Inappropriate marketing strategies
There might also be some distribution problems due to lack of transport, infrastructure/non-
development, communication problems, or poor road network.
Unexpectedly higher costs e.g. costs incurred in introducing the product and producing the
product will be higher than anticipated leading to higher price which tend to lower sales volume.
Brand name – black cat
Company reputation
Poor performance
Inadequate salesman/force
Technical and production problems

Promotion
It refers to communication with actual and potential customers informing them about existing
products through the media (advertising).
It is defined as a series of techniques for informing, influencing and persuading consumers to
buy the firm’s products.

It involves
(a)advertising
(b)sales promotion

Advertising – is the publication of facts and ideas about the products.

Or spreading information and drawing attention of the public.

It involves four broad media.

Media

Print Broadcasting Direct Outdoor

Newspapers Magazine TV Radio

Print media
It is the use of
(i) Newspapers
(ii) Magazines
Print pictures and write words e.g. for local adverts
Manica post
Gweru times
Observer
Chronicle
National Press e.g. Herald
Weekly press e.g. Sunday Mail
Advantages
It is relatively cheap
It provides national coverage
Adverts can be studied at length
The illiterate/deaf can see the advert

Disadvantages
Can not be passed on of readership
It is short-lived
Illiterate people are not habitual readers
It lacks ability to select the group which the message is meant for.
Magazines
E.g. Fairlady, Trade Journal and Shinning star for Frisco

Advantages
It is printed on good quality paper. Therefore tend to be attractive
It can be passed on for readership
The adverts last long
It can target certain groups/can be selective
The advert can be in great detail

Disadvantages
Expensive
Illiterate people can not read

Broadcast (sound or sound and vision)

Radio

Provides sound i.e. say words/sing songs about the product

Advantages
People can hear what is being said about the product
Provides nationwide coverage
Fast/quick method of communication
Repeat explosive

Disadvantages
Interrupt popular programmes
Short lived
Has to book time for advert

TV
Show pictures and say words/sing songs
Show demonstrations
Advantages
It provides national coverage
It appeals in sound and vision
Demonstrations are possible
It can be timed for target group
Message may be repeated for impact
The adverts are colourful therefore tend to be attractive

Disadvantages
It is expensive
Adverts are short lived
Affected by poor reception/transmission
May interrupt popular programmes
There is no guarantee that everybody will be watching or might be watching other stations.
It may be affected by poor cuts

Cinema
Show pictures on the screen
Say/sing out words about the product

Advantages
Sound and vision

Disadvantages
It provides small coverage
No repetition

Direct media/out-door media

It refers to use of posters, sign posts, flyers/bill boards.
Transit media on buses, cars, taxis etc
It can also involve use of Neon lights/electric speculators for location of the business. May show
same colour or flash changing colour to show location of business.

Advantages
Poster/fliers are cheap to produce
Neon lights, posters, sign posts may show the location of business
In case suitable as a reminder
Passers by can see the advert
Allows more geographical coverage
Neon lights are attractive especially those which flash changing colour.

Disadvantages
Neon lights are expensive
Can be affected by power cuts/sometimes no detail. Adverts can only be shown during the
nights
Posters/sign posts/neon lights are localised and transit advert can only be seen by those on
board the vehicle or people by people on which the vehicle passes through.

Point of sale
It includes all activities which aim to promote the product in the location where it is sold e.g.
used to display and promote products in a retail outlet.
E.g. special offers and bargain packages.
Window displays might remind customers of the brand they saw being advertised the night
before.
A dump-bin may draw the eye to the product
Shell sticker may proclaim the price.

Advantages
Many purchases made on impulse which increases sales and profits
In supermarkets a shopper who will be buying in a familiar shop will know where to find those
items.

Disadvantages
Manufacturer has little control over where the product is displayed.
Lead to overspending

Direct marketing
It refers to contacting people direct at their homes/work place through the post.
It is personalised by using recipient’s home addresses and job title
There are no intermediaries
Heavy users of this are rider’s digest
Vary the message to suit the addressee

Disadvantages
Provide intensive/stretched/deep/wide spread/forceful feeling coverage
Advertiser has to keep track with the addressee to ensure that his mailing list is accurate and up-
to date
Some addressees feel bothered by letters from the advertisers. They may not read the letter at
all/junk mail
It is time consuming in getting and maintaining good mailing list

Mail order
It is based upon the use of catalogue and part time agents.
A range of products will be included on catalogues
Customers order and receive goods through the post e.g. utensils, blankets, sheets

Means of payment

C.O.D (Cash on Delivery)

C.W.O (Cash with Order)
Three months credit
Advantages
Customers buy goods in the comfort of their homes
Reduced travelling expenses

Disadvantages
Goods take too long to get to the customers
Postage expenses

Telephone marketing
It involves direct contact at home/at work place.
Used to generate sales for household services such as kitchen improvements
Sales representatives can also contact interested respondents

Direct response
It sells products through customers responding to adverts in the print and broadcast
media/leaflets and distributed by hand.
Usually include tear off for the customer to order goods
Both print and broadcast media use telephone orders and credit cards.

Electronic marketing
It involves giving companies a worldwide market.

Benefits
Can be accessed by many people all over the world
Allow people to purchase online using credit cards

Forms of advertisement
Generic/collective advertisements
Competitive advertisements
Informative advertisements
Persuasive advertisements

Reason for advertising

To introduce/launch new products hence widening the market
To increase sales and profits by keeping the public’s attention focused on the firm’s products’
Educate on health and safety rules
Creates a goodwill thereby maintaining or increasing the public’s acceptance of the firm’s
products
To inform about job opportunities or events likely to happen e.g. soccer matches,
opening/closing of shop
To fight competition
To remind customers about the existing product
Enables customers to make a wise choice on products
Inform about the goods available in stock i.e. price, low, how to use them
Drawbacks/Dangers of advertising
Leads to impulsive buying and overspending
It can mislead customers by false claims. Goods advertised maybe harmful because bad effects
might not be mentioned.
It can increase the prices of goods because costs are passed on to the customer.
Can undermine social/ethical standards
Can brainwash the customer, hence become damaging to the society

Sales promotion
It covers a range of activities such as:
Competitions e.g. OK grand challenge
Free gifts
Free samples/loss leaders
Point of sale displays
Sale/special offers/discounts
Coupons/trading stamps

Advantages
Increase sales and profits

Disadvantages
Costly

Trade Fairs and Exhibitions

These are used by the firms that promote their products
They are visited by both ordinary customers and industrial customers
E.g. motor show, book fair, ideal homes exhibitions

Advantages
They are a useful way of displaying new products and obtaining publicity
They give the chance to show how a product actually works
BZB marketing and promoting of industrial and agricultural equipment is often done through
trade fairs
Consumer reaction to a product can be tested before it is released on to the market
Trade fairs held overseas can form a part of international marketing strategy
New products may be launched
Allows customers to discuss a product with members of a management team
Makes it possible to meet large potential customers very quickly and cheaply

Disadvantages
Expensive
Do not really sell the product effectively

Publicity
It refers to promotion via the press.
Public relations (PR)

It is a process of obtaining favourable publicity via editorial columns of press media, TV, Radio
It is a deliberate planned and sustained effort to establish and maintain mutual understanding
between the organisation and the public e.g. existing and potential shareholders, employees,
pressure groups and customers and general public.
PR can be a positive process such as organising interviews on breakfast, TV shows or setting up
launch parties for new products.
PR also involves listing with media producing and writing publications, newsletters, annual
reports, brochures
Organising events, exhibitions, conferences, product launches and opening events.
Planning publicity campaigns
It also includes sponsorship of ‘good cause’ such as sporting and arts events.

Factors influencing the Promotional Mix

The type of product

Trade fairs and exhibitions are strongly suited to BZB marketing especially for promoting
machinery and equipment or software. Other fast moving goods need different forms of
promotion for customer awareness.

Cost
Newspaper, radio, TV may be expensive for small firms

Stage of product in its life cycle

i.e. promotional needs of product at launch may be different from those used in the decline
stage

Legal and social constraints

i.e. laws which affect the nature of advertising e.g. Trade descriptions Act 19 Section 8 states
that products must correspond to claims made for them on advertisements.

Promotional mix of competitors

Place/Channel of Distribution
It is the path or way in which the products are made available to customers in the place where
they want to buy (right place) at the right time they want to buy the right quantity.
Christmas cards at Christmas time or valentine’s cards during the right season
Customers can be divided into industrial and household
Between manufacturers and customers there are intermediaries which includes:-
Agents
Wholesalers/Merchants
Retailers

Place decisions
 Have to be made on such matters as:-
(1) Choice of intermediaries such as wholesalers and retailers – for easy access to make
purchases
(2) mark-up offered at different stages of distribution process
(3) Transport and storage of goods
(4) Financing and credit arrangements
(5) Provision of after sales services

Distribution channels

Manufacturer

Manufacturer’s own shop Agent

Wholesaler Retailer
Consumer
Mail order Wholesaler

Retailer
Consumer Retailer

Consumer Consumer Consumer

Consumer

Agent
Works/acts on behalf of the firm to perform certain specific services
They provide a link between producers and consumers e.g. factors, Del credere agents,
auctioneers who ma posses the goods.
May or may not specify that they are agents
Brokers do not possess the goods but buyers put buyers and sellers into contact to make their
own deals
They work for a commission
They have expertise to perform distribution roles
They also take additional risk on behalf of producers e.g. storage, shipping
They make distribution more efficient and less costly

Wholesalers

Perform a vital function for both manufacturer and retailer

Services to manufacturer
Buy goods in bulk/large quantities for re-sale thus clearing the line of production allowing the
manufacturer to produce more.
Provide storage facilities
Improving cash flow for manufacturer
Often handle publicity and promotion/advertise on behalf of manufacturer
Provides a ready market for manufacturer’s goods
Provides information/advice about goods on demand
Bears risk

To retailers
Break bulk and sell in smaller lots
Provide storage facilities
Provides a variety
Offer credit facilities 1-3months
Bearing the risk
Provides information

Retailer
Activities related directly to the sale of goods/services to the ultimate consumer
Buys goods in bulk from the wholesaler for re-sale in single units which are affordable by
consumers
Provide a wide variety of goods from which choice can be made
Conveniently located where consumers can easily get goods
Give information plus advice to consumers about what is available
Provide after sales services e.g. delivery guarantees plus credit facilities
Packaging, promotion and advertising activities

Channel routes (shorter channels)

Manufacturer – mail order – consumer

This is direct marketing
Selling goods straight to consumers
It is common for industrial goods e.g. computers, aeroplanes, furniture and cars.
Nature of goods – expensive, perishables e.g. bread, vegetables, fruits, newspapers
Also employed by specialists/mail order/catalogue shops offering online orders through
websites on internet/ the post where the service provider is in direct contact with the customer
May sell via a sales representative
Some goods are made to order/specification e.g. cakes or gowns

Advantages
There is direct contact with customers, therefore provides quick feedback (two way
communication)
By-passes the middlemen, therefore reduces costs
Questions to problems can be addressed quickly
Producer gets a higher promotion of the selling price
Manufacturer has greater control over servicing, pricing and marketing of products.
Cut out the profit margin of the middlemen/intermediary
Can be selective and targeted at most likely potential customers by using computer BZB

Disadvantages
Due to distance the customer is unlikely to have the chance to see or try the product after sales
Maintaining a permanent sales force/representative may be expensive
It may limit the number of potential outlets especially for consumers in export markets
The mail order catalogues may be expensive to produce

Manufacturer – agent- consumer

The manufacturer uses services of agent to sell goods directly to the public

Examples
Insurance broker - policies
Stock broker - shares
Auctioneers - cars
Factors - clothes
Merchants - building materials/newspapers

Advantages
Agent/Merchant undertakes stock holding for the manufacturer and distributing the product to
consumers over wide geographic area.
Manufacturer can concentrate on making the products and not spend time/resources on selling
to consumers directly
Merchants provide services in their own name for a profit

Disadvantages

Final marketing decisions are under the control of the retailer/agents/merchants e.g.
manufacturer can not determine the price, display
Supplier is dependent on the effort of merchant who may also be selling competitors’ products

Factors/reasons fro shorter channels

(a) Product factors

Perishability – when a product is perishable or subject to frequent fashion changes, the
manufacturer uses short channels.
Nature of the product – industrial products sold to other firms use shorter channels because the
products are highly technical e.g. computers, fragile, so direct routes are more effective.

(b) unit cost (e.g. jewellery, cars, furniture)

If unit cost of the product is too high to be able to understand long distribution channel, the
manufacturer therefore may want to distribute the goods directly

(c) Company factors

(d) Company factors
(e)Middlemen factors – e.g. food manufacturers may find that supermarkets do not stock its
goods.
For it to survive, it should do direct sales to consumers by mail order/internet

(3)Manufacturers – Large Scale Retailers – Consumers

The growth of large scale retailers e.g. supermarkets, Department stores, multiple chain stores
has reduced the importance of wholesalers
Large retailers now have enough capital to buy in bulk from the manufacturer
Own transport
Own warehouse facilities such that they perform functions of wholesalers to cut costs
Mainly deal in consumer goods e.g. groceries, foodstuffs, household goods, hardware
These are convenience shops that sell in single units affordable to consumers
Locations – provide local supplies

Advantages
Cooperation maybe easier e.g. supplier can assist with product display, staff training
Retailers provide other services which add value to the goods being sold e.g. home delivery,
repair service, extra guarantee and gifts wrapping

Disadvantages
Increase selling and distribution costs if large number of retailers is targeted
A Large number of retailers have bulk-buying power and may try to obtain discounts and credit
terms which are unfavourable to the supplier
Retailers often stock competitors’ products and it may be difficult to obtain favourable retail
space/service

LONG CHANNEL
Involves two or more intermediaries
Usually wholesalers (cash and carry) – retailers – consumers
It is referred to as the traditional channel
Wholesalers deliver goods to retailers
Wholesalers break bulk in smaller lots
They are conveniently located near retailers
Others offer trade credit
Used in consumer markets to sell fast moving consumer goods e.g. hardware, food.

Advantages
A large number of retail outlets can be reached quickly and easily
Physical distribution of goods is easier
Distribution through wholesalers may be cheaper because of serving on administration and
transport costs which may be incurred by supplying large numbers of retailers directly.
Wholesalers perform important stockholding, breaking bulk into smaller lots/case lots
Buying in large quantities helps clearing the line of production to produce more.

Disadvantages
Slows down the chain of distribution
Wholesaler/retailers will expect to make a profit margin. Mark up required by intermediaries will
reduce profit margin for the manufacture.
The producer goes very remote from the final consumer, making it more difficult to obtain
consumer reaction to products.
The producer has little control over the way in which the products are presented to the final
consumer.

New product pricing strategies

1) Penetration pricing.
Setting a relatively low price often supported by strong promotion in order to achieve a higher
volume of sales
Price discrimination can be time based, e.g. for a phone call might be based upon time of the day
or day of the week when you use a service (different in cost which exist at peak off times)
Rail cost also use this policy (cheaper off peak travel) and holiday firms which charge higher
prices for their product during school holidays
Can also be market based.
It involves offering different market segment, the same product at different prices, e.g. Students
being given discounts on coach and bus travel.
Sell train and bus tickets cheaply to children/elderly people for the same journey. Tomatoes at
Sami Levy’s versus those tomatoes at mbare musika

Penetration Pricing
It refers to a price policy/strategy for a new product/established products being placed in new
markets simply to gain a foothold in a market to achieve high sales volume, capture a high
market share perhaps with the effect of discouraging competitors entering the market
It is setting the price relatively low, thereby accepting low gross profit margin with the exception
that high sales turnover will allow overheads to be covered

Main reasons why businesses use penetration pricing policy

(a)consumers are encouraged to develop the habit of buying the product, so when prices begin
to rise they will continue to buy/purchase it.
Retailers/wholesalers are likely to purchase large quantities of a product, this means that they
will not buy from other suppliers’ until they have sold most of their stock.
Business can thus gain a significant slice of market.
Penetration is often used by large scale firms operating on mass markets such as those selling
biscuits, washing powder, canned drinks etc
Policy used by new/established businesses in other areas to break into new markets.
E.g. CD singles are sometimes launched at lower prices in the first few weeks of their release
before being raised to their full price.

Advantages
Lower unit cost as a result of economies of scale place the business in a favourable competitive
position by giving it a greater margin for price cutting when other producers try to enter the
market
Very useful if the market in which customers build brand loyalty (price can be pushed up later)
May be used as a permanent policy to establish market leadership

This much depends on these factors:-

The expected product’s life cycle
Power of the businesses already existing or already operating in the market
Financial resources of the business adopting the strategy

N.B. a short product life cycle does not give the business time to recover development costs if
prices are set too low
When there is a powerful and existing market leader with larger financial resources than the
producer of an emerging product follow an aggressive price cut.
In the short run, this may lead to low profits but if business can establish itself firmly in the
market, long run profits will be high

Disadvantages of market penetration

The business sacrifices an opportunity to charge high prices to those who are willing to pay them
for being first or innovators
Once a low price has been charged, image has been established in the customer’s mind. It is
hard to shift and may always be associated with low quality
It may lead to price wars if competitors react.
It is difficult to sustain especially with change in technology and international competition

Market skimming
It means setting/charging a high price for a new product for a limited period when a firm has a
unique or differentiated product with low price elasticity of demand
The new product will only be bought by trend setters, enthusiastic, or very rich people or early
adopters willing to pay high price to set the producer first
Business aims to gain as much profit as possible for a new product while it remains unique in the
market
It means selling a product to the most profitable segment of the market before it is sold to the
wider market at lower price.

Reasons why Firms adopt market scheming

To maximise revenue before competitors come into the market with similar products.
New techniques/designs /make new products/new versions of a product can be offered e.g. new
fashion clothes/new toys/new inventions
To raise revenue in short period of time so that further investment in the product can be made
Companies in electronics and pharmaceutical use scheming
Such companies are given a legal monopoly for a certain period for new drugs

Advantages

High prices implies high quality to customers and high profit margins can be made
For a new product, research and development costs can be recovered quickly
Pricing high can be an element of establishing an and upmarket image
 Skimming can be used as a form of price discrimination ensuring that trend setters pay high
price, they are willing to pay than lowering the price to attract mass marketing later

Disadvantages
High price may make it easy for a competitor to launch a successful lower priced imitation
By failing to maximise sales at start, the firm may not be able to hold on to viable market share
when competitors arrive
Policy work if product is distinctive and desirable enough

Price
Penetration

Skimming

O Time

Loss leaders
These are products priced at very low levels in order to attract customers
It is set lower than the average total cost of producing the product.
Businesses which use this technique expect losses made to be compensated for by extra profits
by other products.
The technique is often used by larger supermarkets which sell everyday products such as baked
beans, bananas, cornflakes for low prices.
They aim to attract more customers into their stores, drawn by low prices.
Captive customers will then buy more highly priced and profitable items.

Psychological pricing
Businesses seek to take account of psychological effect of their prices upon customers.
E.g. use of prices just a little lower than round figure $199.99 rather than $200 or $29.99 rather
than $30.
Business believes that they may influence customer’s decision as to whatever to buy or not.
Such prices also suggest that customers will be looking for the value for money.
For this reason producers of high status products such as Prestige cars/design clothing tend to
avoid such prices.
Instead they often choose prices which match their consumer expectations of higher quality.
E.g. $100 may be charged rather than $99.9

Discount and sales

It refers reduction in standard price for a particular group of customers.
A very common form of discount is seasonal sale of retail.
It encourages promotions.
It is normally done to get rid of out of date or out of fashion stock.
It is normally done to encourage bulk purchases.

Pricing methods include: - 1) cost based method.

2) Market competition based method.

Cost based pricing

It is setting a price on the bases of production costs rather than market conditions/competitor’s
pricing.

Main methods of cost based pricing

The idea is that the firm assesses cost of producing and supplying each unit and add an amount
on top of cost.
i) mark –up
ii) Cost plus pricing

Mark –up
Refers to the amount of gross profit added to direct cost per unit usually expressed as a
percentage of Cost price.
It involves adding a fixed mark-up for profit to the unit product of a price.
Size of mark-up depends on strength of demand the product, number of supplies, age, stage of
life of the product.

E.G. the total cost bought in material

Cost pricing/full cost/absorption cost

It calculates the unit cost of an item after allocating a proportion of estimated Fixed
Costs/overheads.
Involves setting a price by calculating the average cost of producing goods and adding mark-up
for profit e.g. if a bus produces 10 000 goods costing $50 000 average cost is $5.00
A mark-up of 20% would mean that goods cost an extra $1 and price would be $6 per product

AFC + AVC + MARK-UP = PRICE

ADVANTAGES
Easy to calculate for a single product where there is no doubt about fixed cost allocation
Is quick and simple and simple way of setting a selling price?
Price set will cover all cost of production.
It ensures that any cost increases will be passed onto the customer in a form of higher prices
thereby protecting the firm’s profit margin
It may also be the only way of pricing a job for which the amount of work cannot be predicted
such as R and D suitable for firms that are price leaders due to market dominance.

Disadvantage

A fixed mark-up does not allow a business to take market needs into account when setting prices
which can only apply in situations where no effective competition applies/[Link] to the
most profitable segment of the market before it is sold to a wider market at lower cost.

Reason why firms adopt market skimming

To maximise revenue before competitors come into the market with similar products.
New techniques/designs mean new products/new versions of a product can be offered e.g. new
fashion in clothes, new children’s toys, new inversions.
To raise revenue in short term period of time so that further investment in product can be made.
Cost in electronics and pharmaceutical industries use skimming.
Such costs are given a legal monopoly for a certain period for new drugs.
Advantages
High prices imply high quality to customers and large can be made.
For a new production demand cost +R and D can be recovered/recouped quickly.
Pricing high can be an element in establishing an up- market image
Skimming can be used as a form of price determination ensuring that trend sellers’ pay high
price they are willing to pay than lowering price to attract mass market later.

Disadvantages
High price may make it easy for a competitor to launch a successful lower priced imitation.
By failing to maximise sales at start the firm may not be able to hold on the viable market share
when the competitors arrive.
Policy works if the product is distinctive a desirable enough.

Disadvantages of Absorption Cost

It does not take market/ competitive conditions into account
It is not necessarily accurate for firms selling several products where the doubt is over the
allocation of fixed costs
It tends to be inflexible e.g., there might be opportunities to increase prices even higher
If sales fall, average costs rise and this could lead to the price being raised using this method.

Contribution
It is a measure of (sales/revenue) the amount a product/department contributes towards
covering Fixed Costs/Overheads of a business and subsequently profit.
It is total revenue minus total variable costs
Contribution – Fixed Costs = Profit
It gives a clearer picture by removing general expenses/F.C which is difficult to allocate.

Question: If a firm sells 20 000 units at $7.50, has $3.00 of variable costs and $56 000 of FC.
What is it Profit?

Contribution Costing/Marginal Costing

It is the valuation of a product’s cost solely on the basis of variable cost of making a product in
order to make a contribution towards FC + Profit i.e. excluding FC or overheads which are
difficult to allocate especially in multi-product companies
Firm calculates a unit VC for the product and then adds an extra amount known as contribution
to F.C.
If enough units are sold, total contribution to Fixed Costs will be enough to cover Fixed Costs and
to yield enough profit.

Contribution per unit

Is the amount each unit sold contributes towards covering Fixed Costs/overheads of the
business.
Once Fixed Costs are covered, all extra contributions will be profit.

Contribution pricing
The setting of prices based on the principle that as long as an item is sold for more than the
variable cost per unit, it is making a contribution towards the overheads of the business

Advantages
All Variable Costs will be covered by the prices and contributions made to Fixed Costs
The technique is suitable for firms producing several products. Fixed costs do not have to be
allocated.
Flexible since price can be adapted to suit market conditions or accept special orders

Disadvantages
Fixed costs may not be covered
If prices vary too much due to flexibility, regular customers may get annoyed

Target pricing/target profit pricing

Involves business setting prices that will earn them a particular level of profit which has been
clearly targeted/that will give a required rate of return at a certain level of out put / sales.
If a company has costs of $400 000 when making 10 000 units of out put and has an expected
rate of return of 20%
Total output cost for 10 000 units= 400 000 required return of 20% on sales = $80 000 total
revenue needed $480 000
Price per unit 480 000 divided by 10 000 = $48

Competitors based pricing

A firm will base its price upon the price se by competitors.
Scenarios in which this approach can be used
1) Price leadership/going rate price
Exists in markets where there is one dominant firm and other firms simply charge a price based
upon that set by market leader
2) Some markets have a number of firms with the same size, but prices a still similar in order to
avoid a price war [Link] large petrol cost
3) Destroyer pricing exist when firms note price of competitors’ products and then deliberately
undercut them in order to try to force them out of the market.
4) Market pricing is where the price charged is based upon a study of conditions that prevail in
certain markets (so called consumer based pricing)

Market oriented pricing

a) Perceived – value pricing
customer-value pricing is used in markets where demand is inelastic and price is placed upon the
product that reflects its value as perceived by consumers in the market e.g. the more prestigious
the brand name e.g. tab the higher the perceived value and so the higher the price that can be
set.
In involves charging the price that consumers are prepared to pay.
Goods with prestige fetch higher price because of status.

b) Price discrimination
Takes place in markets where firm can charge different groups of consumers’ different prices for
the same product.e.g. Airline operators charge different rates for the same journey, commuter
pick hour, sell of train tickets economy, standard or sleeper, bus tickets more cheaply to
children, tomatoes Same Levi or Mbare prices are different.